New parallel pan-Euro-Mediterranean rules of origin
EU and the pan-Euro-Mediterranean (PRM) Contracting Parties have already for several years negotiated regarding an amendment of the rules of origin in force in the PEM area. The aim has been to modernise the rules in such a way that they take into account even better the needs of modern trade and other business activities as well as facilitate transports.
In a technical meeting for the PEM area on 5 February 2020, a decision was made to introduce new rules of origin. At first, they will be implemented between the PEM Contracting Parties that up until now have expressed that they accept the new rules of origin. The new rules of origin will apply as transitional rules until the revision of the PEM Convention is completed, and all Contracting Parties have accepted the new rules.
Application of the new transitional rules and the current rules of origin
The new transitional rules can be applied as of 1 September 2021 in all countries that have accepted the new set of rules. The EU has for its own part, approved the use of the transitional rules, but in several contracting countries, the national approval process is still ongoing. Furthermore, there are some countries that have expressed their unwillingness to accept the new rules of origin. Because of this, two different sets of rules of origin will be applied in the PEM contracting area until all countries have accepted the new rules.
The current rules of origin can still be applied also in countries where the new rules have been accepted or will be accepted. Economic operators in these countries have the opportunity to choose consignment-specifically, which set or rules of origin they will observe. However, two different set of rules cannot be applied crosswise, since the origin of export products must be determined as a whole, either with the current rules or with the revised rules of origin. Therefore, the manufacturer of the export product must also ensure before drafting the proof of origin that, for example, all suppliers of parts used for the products apply the same set of rules.
The choice by the operator can also depend on how soon the other operators in the supply chain start applying the new rules. On its own website, the Commission has published Guidance on Transitional PEM Rules, which is meant for all companies that engage in exports or imports in the PEM area, or that are part of a supply chain prior to export.
Countries that have accepted the transitional rules of the PEM area as of 3 September 2021
In addition to the European Union, the following PEM Contracting Parties will apply the new transitional rules of origin as of 1 September 2021:
- Albania
- the Faroe Islands
- Georgia
- Iceland
- Jordan
- Norway
- Switzerland (including Liechtenstein)
- West Bank and Gaza
In the following countries, the approval process of the transitional rules is ongoing and the timetable for adopting the new rules is still open:
- Bosnia and Herzegovina
- Egypt
- Israel
- Kosovo
- Lebanon
- Moldova
- Montenegro
- North Macedonia
- Serbia
- Turkey
PEM Contracting Parties that choose not to adopt the transitional rules
Not all PEM Contracting Parties are ready to accept the new rules of origin. In these countries, only the present rules of origin will be applied for the time being. A product that is exported to such a country cannot receive preferential treatment based on the new transitional rules, but rather, the exporter must determine whether the product qualifies for preferential treatment based on the current rules of origin. The transitional rules often have more flexible product-specific rules of origin than the current rules. That is why determining the origin of a product requires special care if the company exports the same product both to a country where the transitional rules are applied and to a country where they are not currently applied.
If economic operators export products to countries where the transitional rules are not applied, they need to keep track actively of how the situation is developing. The EU is still negotiating also with these countries, so that only one set of rules of origin will finally be applied in the PEM area. The following countries have yet to express their willingness to accept the transitional rules:
- Algeria
- Morocco
- Tunisia
New or current rules of origin?
Economic operators must decide whether to apply the current rules of origin or the new transitional rules. If they use the transitional rules, the origin of the consignment must be determined solely based on the transitional rules. Likewise, if they use the current rules of origin of the PEM Convention, the origin must be determined based on them. This prohibition on crosswise application also concerns the application of cumulation.
The choice of rules of origin depends primarily on three things:
- Does the export product fulfil the general requirements set for originating products, as well as the product-specific manufacturing requirements based on the new rules?
- Do the suppliers of the manufacturer’s export product apply the new or current rules?
- Does the country of destination apply the new rules or just the current ones?
The decision on which rules to apply may have to be done separately for each consignment, if a certain product is exported both to countries where the transitional rules are applied and to countries where they currently are not applied.
Entries in the proofs of origin, when transitional rules are applied
The Commission recommends that exporters and suppliers enter in the proofs of origin and supplier’s declarations by which set of rules the origin of the products is determined. If the origin is determined according to the rules of origin of the current PEM Convention, the proof of origin must have the entry ‘PEM-convention rules of origin,’ but if transitional rules are applied, the proof of origin must have the entry ‘transitional rules of origin.’ In the Movement Certificate EUR.1, this must be entered in box 7 of the document.
In the declaration of origin, the exporter expresses after the actual declaration of origin, which set of rules are applied. After the text ‘these products are of ............... preferential origin’ the export writes either ‘according to the PEM-convention rules of origin’ or ‘according to the transitional rules of origin.’
If the product fulfils the requirements of both the current and the new rules of origin, the operator can enter that the rules of both sets of rules are fulfilled. If the several different products are mentioned in document, and their origin is determined according to different sets of rules, or the products are not considered as originating products, the correct information must be entered clearly for each product.
Below is an example of an entry by an approved exporter when all products in the document are classified as originating products based on the transitional rules. If the document contains several different products with an origin determined based on different sets of rules, the correct information must be entered clearly on the row for each product. In that case, enter for example ‘according to the transitional rules and PEM-Convention rules of origin as specified separately in the product list’.
The exporter of the products covered by this document (customs authorization No ........... (1)) declares that, except where otherwise clearly indicated, these products are of .............. (2) preferential origin according to the transitional rules of origin.
........................................................................................................................................................................................
(Place and date) (3)
........................................................................................................................................................................................
(Signature of the exporter, in addition the name of the person signing the declaration has to be indicated in clear script)
If information on the set of rules applied is not entered at all in the proof of origin, the operator is regarded as having applied the current rules of origin of the PEM Convention.
Utilising the transitional rules retrospectively
If determining the origin of the product is difficult for the exporter e.g. because all suppliers cannot apply the new rules, the Commission recommends that the operators apply the current rules of origin.
However, if the product does not fulfil the stricter requirements of the current rules of origin or if the exporter for some other reason does not wish to apply the current set of rules, then the proof of origin can also be drafted retrospectively according to the transitional rules (Article 21(1)(d) of the transitional rules of origin). In that case, the exporter delivers the products to the country of destination without proofs of origin and issues the proofs to the importing country when the products can be regarded as fulfilling the new rules of origin.
Cumulation
The new rules of origin have more flexible conditions for cumulation of origin. A so-called full cumulation can be applied for most products between countries that have accepted the new rules. In that case, origin can be accumulated, when the manufacturing takes place in several contracting countries. However, for textiles falling under chapters 50 to 63 of the Harmonized system (HS), cumulation can only be applied bilaterally. Cumulation as defined by the transitional rules cannot be applied crosswise with the current rules for cumulation. The Commission will later publish in the Official Journal of the European Union a table of the new rules alongside the current rules of the so-called Matrix cumulation chart. The table shows the possibilities for applying cumulation between different contracting countries.
Sufficient processing – the use of average prices
In the definition sufficient processing in the transitional rules, the costs of the acquired products as well as the fluctuating currency rates are taken into account when determining the origin (Article 4(3-6) of the transitional rules). When determining the origin of the export product, the exporter can ask the customs authorities for authorisation to use the average of the acquisition price for non-origination products used, as well as the average ex-works price. However, the averages must be based on purchases and sales for a long enough period. In addition to exporters, suppliers can also ask for an authorisation to apply average prices for their goods deliveries. The Commission has published more detailed instructions for using average prices in their guidance on transitional PRM rules. The guidance also describes for which products this method can be applied and how the periods are determined when average prices are calculated.
Tolerance
In the transitional set of rules, the general tolerance for non-originating materials i.e. the allowed maximum amount, has mainly been raised from 10% to 15%. However, the tolerances for textile products falling within chapters 50 to 63 of the HS nomenclature have been determined separately (Annex 1, Notes 6 and 7 of the transitional set of rules).
Accounting segregation
The transitional set of rules have less requirements regarding accounting segregation than the current rules of the PEM Convention. For the operator to be granted authorisation under the current rules to store materials without separating them physically, considerable cost or material difficulties must arise in keeping fungible originating and non-originating materials of the same kind and commercial quality separate from each other. The transitional rules no longer have any corresponding requirements, but rather, the operators can store non-originating and originating goods is the same facilities, if they feel that it is necessary for their business operation.
Transports between Contracting Parties
The transitional set of rules also include fewer restrictions for transporting goods. The current rules include requirements for direct transports, but according to the transitional rules, even originating products transported via third countries can receive preferential treatment. That is, there are no longer any conditions regarding the transport route, but goods still cannot be changed during transport or temporary warehousing.
Duty refunds
The prohibition on duty refunds in the new transitional rules will no longer apply for any other products than textile products mentioned in chapters 50 to 63 of the HS nomenclature. This means that, when a product originating in a third country is processed in the Union under the inward processing procedure, so that it is considered an originating product, a proof of origin can be drafted for the country that has approved the PEM transitional rules. This is without a subsequent levying of the duties, which were suspended when the products were placed under the procedure.
Proofs of origin
When exporters apply the transitional rules, they can submit proofs of origin, either traditionally with movement certificate EUR.1 or with a declaration of origin, regarding products that qualify for preferential treatment. Furthermore, the rules include the possibility to provide a proof of origin in the REX system for registered exporters. However, the use of the system must be agreed on separately in bilateral agreements, so for the time being, the REX system is not in use in the PEM area.
The movement certificate EUR.1 or the proof of origin must include a mention of which rules are applied. When applying cumulation, the details of how the origin is determined must according to the new rules, always be provided with a movement certificate EUR.1, since EUR-MED certificates are no longer used. Movement certificate EUR.1 must always contain the following text in English ‘Cumulation applied with...’ and the countries, which originating materials were used during the manufacturing, are entered.
In the customs declarations, the document codes of the new transitional rules are entered:
- U075 = in movement certificate EUR.1, when ‘Transitional Rules’ is indicated in box 7.
- U076 = in origin declaration, when ‘origin according to the transitional rules’ is indicated in the declaration.
Consignments that include originating goods valued at no more than 6 000 euros do not have their own document codes, but rather, all origin declarations are entered with the code U076 in the customs declaration.
Product-specific rules of origin
Product-specific rules in the new transitional rules are mainly more flexible than before. For example, the share of allowed non-originating materials in the end product is increased for several products from 40 per cent to 50 per cent. However, the operator must always check the requirement as to origin for each product. For example, some agricultural products, such as malt extract of chapter 1901, have more strict conditions for the use of sugar, than the current rules of origin of the PEM area.
The fact for most products is that if the product was considered an originating product entitling to preferential treatment based on a current product-specific rule of origin, it is likely that it fulfils the conditions of the new rule as well. However, the operator must always check the product-specific rule, and that the other requirements of the transitional rules for the originating product are fulfilled.
Additional information on the Commission website:
ROSA, Tool for determining the origin of an export product
Website of the pan-Euro-Mediterranean area
List of countries that have approved the PEM transitional rules as well as the countries documents on the bilateral agreement with the EU
General information on preferential rules of origin
More information on the Customs website:
Approved exporter